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Belly Full; Plate Running Over

Financial Statement preparers have their
hands full implementing the most significant overhaul of existing accounting
rules in decades with new standards on revenue, leasing, and financial
instruments (credit losses and classification and measurement), Financial Executives
International’s Committee on Corporate Reporting (CCR) said in an Oct. 17
letter to the Financial Accounting Standards Board.

FEI members don’t believe there is a
foundational accounting area that needs to be fixed at the current time, the
group said in response to FASB’s invitation to comment (ITC) about its future
standard-setting agenda.

“A
survey of our members found that none of the projects listed in the ITC had
broad-based support for being added to the FASB’s formal project agenda,” FEI
says.

CCR member companies represent
approximately $5 trillion in market capitalization.

FASB Holding
Roundtables.

The ITC, issued by FASB in August, seeks
advice on whether the board should revise accounting standards in four areas: intangible
assets--including research and development; pensions and other postretirement
benefit plans; distinguishing liabilities from equity; and reporting
performance and cash flows.

Those topics were picked as a result of
feedback FASB received from its stakeholders and advisors as areas that needed
standard-setting improvements or revisions.

FASB received 38 comment letters on the
ITC as of Oct. 21, according to its website. The board plans to hold public
roundtable meetings in November.

Under Heavy Pressure!

Preparers are already under significant
pressure to apply the new rules and need assistance and support from the board
and staff during the implementation phase of these principles-based standards,
CCR said.

“The need for support and assistance from
board and staff during the implementation phase of these principles-based
standards in our regulatory environment should not be underestimated,” the
letter states.

The organization also said that preparers
are “heavily focused” on successfully implementing the new rules, which will
impact all companies -- whatever size, industry or sector.

Many Still don’t
Know Full Impact.

To date only a few public companies are
prepared to early adopt the new Revenue Recognition (Topic 606) standard, CCR
says, “and history would suggest that implementation issues only increase the
closer one gets to an adoption date.”

Regarding the Leases (Topic 842) standard,
many companies don’t know its full impact, and won’t know until they determine
how many leases they have that are applicable to the rules.

“Collecting the data, understanding the contracts,
locating and determining the value of the liability and right-of-use assets may
prove challenging and time consuming for many,” CCR says.

“In addition, companies need time to
consider the impact to accounting policies, processes, controls, and IT systems
which will require significant time and effort and more importantly, a
concerted focus by management,” the committee says.

Most significant
in Decades.

The changes occurring with credit losses (Topic
326) is the most significant accounting change financial institutions will
adopt in decades -- equivalent to revenue recognition for a deeply affected
industrial company and requiring similar time, effort, and focus.

“Similar to revenue recognition, this
standard is principles-based and will require extensive coordination across
functional lines,” CCR says.

For example: accounting, risk management
and auditing as well as communication among peers to ensure all application
questions have been addressed to achieve consistency in approach.

Unlike revenue and leasing standards, regulatory
involvement will be another significant complicating factor affecting the
adoption effort of the credit losses rules, the letter says.

Drowning in
Changes.

In conclusion, CCR said FASB should
favor adding a limited number of projects that will ease the financial
reporting burden of companies during this time of unprecedented change.

FEI’s CCR letter isn’t the only
complaint, other letters -- though not all, and not the majority --have alluded
to the same concerns.

One letter, from a small business owner,
says “Stop! We are drowning in changes and the last thing we need is new
standards.”

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